 Manchester United and Portsmouth have dominated news about the business side of football during the past month. Indeed, they have featured prominently in more general media discussions. In their different ways they have been seen to represent basic flaws in the Premiership model.
The story at Portsmouth has been one of successive owners who turned out not to have the money they claimed to have combined with substantial overspending on players as the club tried to maintain its Premiership status. If it hadn’t been for a relatively understanding judge, the club could well have been put out of business for trading while insolvent. Revenue and Customs, increasingly aggrieved at the amount of money it has been losing to football clubs, continued to chase them in court but eventually accepted that the administration process was legitimate.
Although they have received a nine points deduction, they have been treated with relative leniency by the Premier League. They have been given special permission to sell players ahead of the transfer window and they may even receive some of their television money and parachute payments ahead of time. The fact of the matter is that the Premiership doesn’t want to face the chaos that would arise if Pompey were unable to complete their fixtures.
From being on the brink of extinction, Portsmouth will survive to re-group in the Championship. However, they need to find a new owner soon so that they can complete a Company Voluntary Arrangement and avoid a further points deduction in the Championship and a possible slide to League 1. Given that there are other clubs available such as Cardiff City which offer potential purchasers a more promising short-term prospect, that might not be too easy.
Portsmouth is not alone in their problems. It has been difficult to get to the bottom of the tangled financial problems surrounding Hull City. It is evident that they cannot sustain their wage bill, but that is only part of the story. It is clear that they are very short of money and if Iain Dowie can’t keep them in the Premiership they will have a struggle to survive in the Championship. Relegation would, of course, also be a major blow to West Ham and their new owners, but Burnley has spent prudently and their year in the top flight should boost their finances rather than undermine them.
Opposition to the Glazers has gathered momentum at Manchester United where the Manchester United Supporters Trust (MUST) has seen a massive increase in membership and the green-and-gold ‘Newton Heath’ scarves have almost become a ‘must have’ fashion accessory. Fans have been disgruntled with the Glazers because of above inflation rise in ticket prices (although they have been frozen next season), but above all because of the sums of money going out of the club to meet interest payments on their leveraged acquisition of United.
The hope of new ownership rests with the Red Knights. They are credible individuals, they have considerable financial expertise and highly regarded advisers and they should be able to raise the £1.2bn+ it would take to acquire the club. There is only one problem: it’s not for sale. The Glazers have no motive to sell as long as they can service their debts which they should be able to do and the incentive to hang on is a long-term appreciation of the capital value of the club.
With a general election in the offing, politicians have re-discovered the concerns of fans. Labour have come up with a plan to provide to fans 25 per cent of the shares in a club if it is the subject of a takeover. The Conservatives have responded with claim that this is a political gimmick and having a fan on the board is more effective. In fact both solutions raise complex company law problems.
For all these difficulties, the financial basis of the Premiership model remains secure. This is reflected in the fact that the Premier League has more than doubled its income from overseas broadcasting rights for the next three-year period, even before a deal has been settled for Russia. There was intense competition between Asian pay-tv channels for the rights, reflecting the popularity of top flight English football as a basis for gambling.
As well as increasing payments to Premier League clubs, this bonanza will enable parachute payments for relegated clubs to be increased to three years and increased to £16m. This has not been welcomed by the smaller clubs in the second tier who argue that it will enable relegated clubs to dominate the Championship, making the league less competitive.
A potential threat to television revenues has come with a decision by broadcasting regulator Ofcom following a three-year review of the arrangements under which Sky’s premium content including football is ‘wholesaled’ to other platforms. At the moment, only Virgin Media buys this content to retail it to its own subscribers, but BT Vision, which has substantial expansion plans, would like to join them. Potentially the regulator’s decision could lead to cheaper access to live football for fans and a long-term reduction in Premiership revenue from television which is the basis of its whole financial model.
However, the threat to BSkyB and the Premiership should not be exaggerated, even though both of them have been complaining vociferously. The regulator has set the wholesale price at a higher level than was anticipated, reducing the advantage gained by Sky’s rivals. Moreover, Sky has announced that it will appeal against the decision which may well mean that it will not be possible to launch the new services in time for the 2010/11 season. Sky’s reaction probably reflects a concern that this decision could represent the thin end of the wedge and the opening of the regulatory floodgates. Certainly, Ofcom has portrayed Sky as the equivalent of the BBC in terms of its dominance but without the costly public service obligations.
There is a lot of turbulence in football at the moment, but whether this will lead to real change remains to be seen. Read more about these and other stories at www.footballeconomy.com.
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